2019 Announced as Effective Date for the New Lease Accounting Standard

After a fairly quiet period since the last update, the International Accounting Standards Board (IASB) have revealed that the new Leases standard will be implemented from the 1st January 2019.

The announcement follows the recent meeting at the end of October, where the board deliberated further developments regarding the definition of a lease as part of the new lease accounting standard, which they have assured is still expected to be finalised before the end of 2015.

The discussions continue from the meeting held in February 2015, where the board agreed that for those using International Financial Reporting Standards, a lease will be defined by the following:

“A lease is defined as a contract, or part of a contract, that conveys to the customer the right to use an asset for a period of time in exchange for consideration.

The revised definition is the result of feedback following the 2013 Exposure draft which highlighted a need for clearer details regarding the difference between a lease contract and a service contract. Although the board believe the distinction is clear within the vast majority of cases, they do accept this is not always the case, such as when both parties make decisions about the identified asset.

“A lease exits when the customer controls the use of the indentified asset throughought the period of use. This is when the cutsomer has the right:

Obtain sustaitially all of the economic benefits from use of the identified asset throughout the period of use; and

Direct use of the identified asset thought that periodnge for consideration.

The IASB have published a detailed breakdown alongside this announcement, which clarifies each element of the definition with draft application guidance and illustrative examples for a range of assets and agreements.

The process of gathering and reviewing all active leases could potentially take over 12 months and with the desire to optimise company leasing before the effective implementation date, businesses need to start organising themselves to remain compliant and reduce the costs of transitioning to the new standard. Businesses are advised to look towards advanced, specialist lease accounting software to help collate and report on their leases as well as improving general lease management. By centralising their lease portfolios on one, intuitive platform, they have the advantage of automated reports, search and filtration options as well as many other features to help facilitate a smooth transition.

We are now finally able to add a deadline in our calendars to work towards preparing for the new global lease accounting standard. Companies will need to begin gathering their lease data and analysing their lease portfolio management if they want to ensure full compliance and make this transition a cost-effective – and potentially profitable – undertaking.